In finance, technical analysis is a method used to forecast the direction of price movements by studying past market data. There is typically a strong focus on price and volume. Technical analysis and its counterpart fundamental analysis are both disputed by adherents of the efficient-market hypothesis.
According to proponents of financial technical analysis, market trends are reliable predictors of future events, and historical data can provide traders with information about suitable future entry and exit points.
There are a lot of binary option traders that utilize technical analysis as a part of their trading strategy.
If you are new to technical analysis, a good place to start is by learning the basics about candlestick charts. This is just one aspect of technical analysis, but it is a good starting point from which you can explore further.
Many binary option traders use candlestick charts to make decisions about when to open and close positions. (You can artificially close a binary option before its expiry date by purchasing a opposite binary option that will counteract the original one. Some modern platforms offer a premature close, so you don’t have to do it in this roundabout fashion.)
A candlestick chart (also known as Japanese candlestick chart) is a financial chart used to describe price movements. Most tools will show you one “candlestick” per trading day, so if you pull up information for a period of five trading days you will be looking at five individual candlesticks.
A candlestick chart can be described as a combination of line-chart and a bar-chart. Each bar represents the opening price, the closing price, the highest price and the lowest price. The idea is to create a chart that presents quite a lot of different data in a fashion that makes the chart easy to read and patterns and trends easy to spot.
So, why is it called candlestick? Together, the lines that represent the top price, the bottom price, the opening price and the close price create a shape that resembles a candle. Please note that the “wicks” of each candle are important and can add pertinent additional information.
En graph showing historical volatility can be good to have for anyone interested in technical analysis.
A moving average is a trend following indicator based on the historical price of an asset.
In finance, there are two main ways of calculating moving averages.
- Simple Moving Average: All historical prices are given the same weight.
- Exponential Moving Average: More weight is given to more recent averages.
There are binary option trading strategies available that revolve around asset prices crossing over moving averages. When the price of an asset crosses over its moving average, this is interpreted as a signal heralding a change into bullish or bearish market.
The trend indicator Moving Average Convergence Divergence (MACD) displays the relationship between multiple moving averages of an asset. The most commonly utilized version are 9 days moving averages, 12 days moving averages and 26 days moving averages.
Over time, the MACD can show strong bullish or bearish signals. Look for when the price of the asset and the MACD indicator are diverging, or if the MACD is rising sharply, or if there is a crossover between the MACD indicator and the signal line.
This indicator compares the closing price of an asset to the asset’s price range over a given period of time. In an upward-trending market, prices tend to close near their highs. In a downward-trending market, the opposite is true, with prices normally closing near their lows.
In technical analysis, stochastics information is generally converted into a number between 0 and 100. If the value dips below 20 or soars above 80, something is afoot and traders will pay special attention.
(Some use a scale that starts on -100 and goes up to +100 instead.)